Economics: Deflation and depression?

Question

We're right now suffering from inflation. If inflation is when prices rise, is deflation when prices drop? Hoe can we cause a deflation? Is a depression when prices also drop? Sources?

Answer 1

A common misconception is that inflation is the result of rising prices. This is a misunderstanding of cause and effect. Inflation is an increase of the supply of money, consequently deflation is a decrease in the supply of money. So when more money is created, a general rise in prices will eventually occur. Think of it as going to an auction and giving everyone double their money. The outcome would be higher bids than if the extra money wasn't added.

Inflation is legalized through the Federal Reserve banking system in the US (and other central banks throughout the world). Control of the money supply and inflation are convenient ways for politicians to fund wars and welfare, because it is difficult to ask the public to pay for them directly. It is often called the "inflation tax", but not many people know about it, because they don't understand how the monetary system works.

I suggest you peruse my source if you are interested in finding out more and I will be happy to answer any questions you have.

Answer 2

inflation means that the value of money is less. Meaning- if $1 could buy you x today, but it will cost you $2 tomorrow - then that means there is inflation - b/c your money is only worth half as much as it was worth before.

Deflation is the other way around - i.e your money is worth more.

Depression has to do with national output. The wealth of all the countries of the world are measured by their GDP (gross domestic product). When a country's GDP level is falling- we say they are going into a depression.